Correlation Between Qantas Airways and China Southern

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Can any of the company-specific risk be diversified away by investing in both Qantas Airways and China Southern at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Qantas Airways and China Southern into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Qantas Airways Limited and China Southern Airlines, you can compare the effects of market volatilities on Qantas Airways and China Southern and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Qantas Airways with a short position of China Southern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Qantas Airways and China Southern.

Diversification Opportunities for Qantas Airways and China Southern

-0.15
  Correlation Coefficient

Good diversification

The 3 months correlation between Qantas and China is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Qantas Airways Limited and China Southern Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Southern Airlines and Qantas Airways is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Qantas Airways Limited are associated (or correlated) with China Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Southern Airlines has no effect on the direction of Qantas Airways i.e., Qantas Airways and China Southern go up and down completely randomly.

Pair Corralation between Qantas Airways and China Southern

Assuming the 90 days horizon Qantas Airways Limited is expected to generate 0.26 times more return on investment than China Southern. However, Qantas Airways Limited is 3.79 times less risky than China Southern. It trades about 0.1 of its potential returns per unit of risk. China Southern Airlines is currently generating about -0.11 per unit of risk. If you would invest  340.00  in Qantas Airways Limited on December 30, 2023 and sell it today you would earn a total of  10.00  from holding Qantas Airways Limited or generate 2.94% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Qantas Airways Limited  vs.  China Southern Airlines

 Performance 
       Timeline  
Qantas Airways 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Qantas Airways Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Qantas Airways is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
China Southern Airlines 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days China Southern Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in April 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Qantas Airways and China Southern Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Qantas Airways and China Southern

The main advantage of trading using opposite Qantas Airways and China Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Qantas Airways position performs unexpectedly, China Southern can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in China Southern will offset losses from the drop in China Southern's long position.
The idea behind Qantas Airways Limited and China Southern Airlines pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.

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